Employment policies and data

Norway’s job market works for most youth but too many rely on sickness benefits

27/08/2008 - On many counts, the youth labour market in Norway is performing very well. The unemployment rate among young people aged 16-24 was 7.3% in 2007, 6 percentage points below the OECD average and the employment rate was almost 12 percentage points above the OECD average.

The incidence of long term unemployment is extremely low amongst young people: 2.5% of the total youth unemployment versus an OECD average of 19.6%. In addition, the earnings of Norwegian youth relative to those of adults (aged 35-44) are among the highest in the OECD: young low educated workers earned more than 60% of the average wage, 20 percentage points above the OECD average. Despite this good performance, there are concerns about the school to work transition in Norway. First, the unemployment rate of young people aged 20 29 with a non-European immigrant background in Norway is over three times that of native young people in the same age group. This is a higher ratio than in most of Europe. Second, six years after leaving school the number of young people receiving health related benefits is almost double that of those who are unemployed or participating in an active labour market programme (ALMP).

The Norwegian government is aware of the need to develop education, labour market and welfare policies that are likely to maximise youth labour market opportunities and incentives to participate in the workforce. Although many sound measures were put in place recently to help improve the school to work transition, several barriers to youth employment remain. The OECD recommends further action, targeting youth at risk of becoming long term welfare beneficiaries. The following measures should be considered:

Remove the remaining barriers to pre schooling participation. Kindergarten attendance currently means the loss of a lump sum allowance (Kontantstøtte) aimed at rewarding families who decide to take care of their children at home. The loss of this allowance could represent a disincentive for low income and non-native families to enrol their children in kindergarten, a group for whom early exposure to education and the Norwegian language matters most.

Reduce the cost of employing low skilled youth. One option would be to introduce a low skilled youth sub-minimum wage comparable to what is found in the Netherlands. It would stimulate firms’ demand for these young workers. However, such a measure should be accompanied by a simultaneous reduction of the generosity of welfare benefits that school drop-outs can claim, to avoid creating another welfare trap.

If it proves unfeasible to introduce a sub-minimum wage for low-skilled youth, a hiring subsidy could be considered instead. A targeted hiring subsidy would involve a cost for the taxpayer, but would preserve the social partners’ prerogatives in the area of wage settlement.

Better identify at risk individuals aged less than 30 as the group that should be targeted and activated in priority among the clients of the new Employment and Welfare Agency (NAV), and enforce a more rigorous "mutual obligations" with them. Current rules, spelt out in the schemes dedicated to jobless youth aged 20 24, represent a first step in the right direction. But their effectiveness could be improved by adopting (moderate) benefit sanctions in case of repeated absence or unwillingness to participate, similar to the ones applicable to recipients of unemployment benefits.

Develop a “residential” option as part of the arsenal of measures aimed at helping very disadvantaged youths. Standard ALMPs are unlikely to work for the most disadvantaged youths who usually cumulate social risk factors (low education, ethnic minority background, drug use, etc). For this group, more radical options may be needed. One possibility is to develop institutions offering a boarding school type environment, delivering a mix of i) adult mentoring; ii) work experience; and iii) remedial education. Models for this initiative could come from the long standing US Job Corps programme or the well established Nordic tradition of Folk High Schools.